DNL: Dividend Focused Against Weak Momentum

The market is often stupid, but you can’t focus on that. Focus on the underlying value of dividends and earnings. – John C. Bogle.

I’ve written about international investing a few times here on Seeking Alpha, and maintain that the era of U.S. large-cap dominance is likely nearing its end, favoring stocks outside of America. Timing is always the question though given momentum in the near-term. When the time is right, I think the WisdomTree Global ex-U.S. Quality Dividend Growth Fund ETF (NYSEARCA:DNL) is a good option to consider given its valuation, income, and fundamental focus.

DNL aims to emulate the performance and yield of the WisdomTree Global ex-U.S. Quality Dividend Growth Index before accounting for fees and expenses. The fund primarily invests in dividend-paying companies from select developed international and emerging markets outside the U.S. based on their growth and quality characteristics.

DNL was launched on June 16, 2006, and has over half a billion in assets under management. Not a large exchange-traded fund, or ETF, but not a small one, either, in terms of investor interest. It holds a portfolio of about 305 stocks, with a gross expense ratio standing at 0.42%. The fund’s distributions are made quarterly, making it an attractive proposition for income-focused investors.

Dividends aren’t terribly impressive, but that’s not necessarily a bad thing so long as there is capital appreciation potential.

That’s where the short-term becomes problematic. Yield is low compared to other dividend funds, and price momentum is negative short-term. That’s why this is a fund worth watching, but not allocating to just yet.

DNL’s Portfolio Composition

The fund’s portfolio is well-diversified across sectors and countries. Canada makes up the largest weight at 13.53%, followed by the UK at 10.95% and Switzerland at 10.70%. I like the weightings here as you often don’t find funds that focus their top country allocations there.

On a sector level, DNL’s assets are primarily invested in Information Technology, Industrials, and Healthcare. I remain concerned about the Tech sector not just in the U.S. but everywhere. The diversification is helpful here.

The fund’s top holdings include reputable companies like Taiwan Semiconductor Manufacturing Co Ltd (TSM), Novo Nordisk A/S-B (NVO), GSK Plc (GSK), Samsung Electronics (OTCPK:SSNLF), and others. These companies have demonstrated steady growth in earnings and dividends, supporting the fund’s overall performance. The top 10 holdings make up a little over a third of the portfolio. Still diversified relative to other international proxies.

DNL’s Performance

DNL has demonstrated robust historical performance, outperforming several of its peers like the iShares International Select Dividend ETF (IDV) ETF. Volatile for sure on a relative basis, but still on top.

The results look fairly compelling against more than just IDV though. Performance against other competitors is also fairly robust.

The Case for DNL in Current Market Conditions

Despite short-term challenges, the case for investing in DNL remains strong. The current investment climate is filled with uncertainties, making assets that offer a blend of growth, income, and quality more valuable. While international markets present their own set of challenges, including weakening momentum in the here and now, DNL’s robust strategy, diversified portfolio, and dividend yield focus make it an investment worth considering. I’d just wait for momentum to turn its way again.